A Toast of Foreign Investors


In recent times, Nigerian insurance sector, despite its low returns on investment, has become the toast of foreign investor. In this report, Ebere Nwoji looks at a number of firms taken over by the investors as well as discussions for further take over of existing firms

With recent acquisition of 29.9 per cent stake in NEM Insurance Plc by a leading African Private Equity Fund Manager, Advanced Finance and Investment Group(AFIG Funds) , which now positions the group as the majority shareholder in the progressive 60 year-old NEM Insurance and total acquisition of Ensure insurance by the Allianz group in July 2018 as well as on-going enquiries on the fundamentals of other insurance firms in Nigeria by foreign investors, the Nigerian insurance sector, seems to have become an object of scramble and partition for investment by investors from both European and other African markets.

Indeed, foreign investors are really taking advantage of huge market position of Nigeria due to population, low prices of insurance stocks and apathy of indigenous investors towards insurance stocks due to low yields to corner the existing firms to their side and if possible, chase indigenous investors out of the market.

A close look at what is trending in the industry in the past few years shows that dilution of ownership structure of the existing firms is becoming so customary in our time that choice of insurance firms that will underwrite their big time businesses by the insuring public is almost dependent on the stake of one foreign investor or the other in existing indigenous firms.

As a result, some insurance firms especially the hitherto big old firms who because of some kind of conservative attitude to investment have remained stand alone are now turning back on their own to woe foreign partners to come and take stake in their firms to not only inject fresh ideas also position them on the same pedestal with new generation companies with foreign investor partnership in order to win certain high ticket businesses.

Both Niger Insurance plc and RoyalExchange General Insurance plc before now, told THISDAY that they were looking for foreign partners that would help reposition and consolidate on their positions as market leaders.

While the immediate past Managing Director of Niger insurance Plc, Mr Kola Adedeji, in an interview with media men at the end of the company’s Annual General Meeting in Abuja said Niger Insurance was earnestly searching for foreign partners, Royal Exchange Assurance Managing Director Alhaji Muktari, said his company was searching for foreign partners but has resolved to do that with utmost care.

He however said the company needs foreign partners this time if it must be in tune with the trend in the market.

This sudden interest in Nigerian insurance market by the foreign investors dates back to 2012. But the tempo rose higher in 2013 after the regulator the National Insurance Commission launched “no premium no cover policy”, which made the business more attractive by putting more money in the vault of insurance firms.

In 2013, the then Commissioner for Insurance, Mr. Fola Daniel, had disclosed that foreign equities rose to 62.8 per cent in at least seven insurance firms, while many investors were also negotiating with other local underwriters on how they could invest in them.

Those leading in the race of foreign investment in Nigerian insurance sector were NSIA which acquired 96.15 per cent in ADIC Insurance, a former subsidiary of Diamond Bank Plc; Mutual & Federal Insurance Company, South Africa, which acquired 70 per cent of Oceanic Insurance Company Limited, formerly owned by Oceanic Bank Plc; Old Mutual Nigeria Services Company (Old Mutual Nigeria)also acquired 70 per cent of Oceanic Life Assurance Limited, a subsidiary of Oceanic Bank.

Others are UBA Capital Holding Limited/MMI Holdings, which had 50/50 per cent of UBA Metropolitan Life, formerly owned by United Bank for Africa Plc; FBN Holdings/Samlam Group SA, had 65/35 ownership of FBN Life, formerly owned by First Bank of Nigeria; Assur Africa Holding acquired 67.68 per cent of Mansard Insurance, formerly owned by GTBank; while New India Assurance Company had 51 per cent stake in Prestige Assurance Plc.

Few years after, more and more foreign interests were brought to bear in the activities of these companies .For instance, AXA SA acquired majority stake in Mansard Insurance in 2014 and changed the firm’s name to AXA Mansard Insurance; Metropolitan International Holdings (Proprietary) Limited acquired 100 per cent of UBA Metropolitan Life and changed it to United Metropolitan Nigeria Life Insurance Limited; Old Mutual completed the firm’s acquisition from Ecobank Group (after the bank acquired Oceanic Bank) and changed its name to Old Mutual Nigeria.

According to the regulator, the National Insurance Commission, more than 12 foreign investors have ventured into the country to acquire new firms between 2012 and 2018.

On the reason for the ongoing interest and scramble for equities in Nigerian insurance firms, capital market operators in their analysis said even as at present, investment talks between foreign investors and Nigerian insurance firms are on-going because the outlook for the sector is positive.

One of the capital market operators who spoke to THISDAY on the development attributed this to low prices of Insurance stock and foreseen brightness of the sector’s future.

“As you are aware, insurance stocks are very affordable now since the Nigerian Stock Exchange (NSE) introduced a new pricing methodology and par value rule January last year.

“Some foreign investors had targeted some insurance firms to acquire before the new recapitalisation policy of the National Insurance Commission (NAICOM) stopped them. However, after the recapitalisation was cancelled, the investors are making their way back to the negotiation table,” the operator said.

He explained that some of the investors were prior to the botched recapitalisation exercise, actually waiting to see firms that would meet the recapitalisatioon policy before it was cancelled by the industry regulator.

“Now they are preparing to return because the recapitalisation burden has been removed and their value on the stock market look very attractive. That is why investors are now looking at some of the companies for possible acquisition,” he said.

THISDAY checks on prevailing prices of insurance stocks reveal that over 14 stocks out of the 26 insurance firms on the NSE are currently trading below 50 kobo par value. Market analysts said although the lower prices offered new entry opportunities in some of stocks, investor apathy for insurance stocks are basically caused by two major factors which are low returns on investment and unawareness of problem of insurance in Nigeria.

Another reason for the sudden interest, according to industry analysts, improvement on the capital base of the industry which positioned the industry as becoming more serious than ever.Before the 2007 mandatory recapitalisation exercise in the sector , of the insurance companies were indigenous underwriters, they had less capital, they suffered neglect by both investors and the insuring public as well as suffered negative perception and operated on a low scale.

Before the exercise, the sector’s minimum operating capital ranged from N150m, for life underwriters,N200m for non life and N350m for composite firms.

After the 2007 exercise, it was upgraded to N2bn, for life,N3bn, for non life N5bn for composite firms and N10bn for reinsurers. After the exercise, which reduced the number of operating firms to 59 , some the existing firms like Leadway and Custodian and Allied among others have successfully raised their operating capital far ahead of the required minimum.

This new status began to not only attract big ticket businesses also attracted foreigners into the sector, who started by buying small equities in the companies and graduated to taking over the insurance firms.

Both management and board of the affected firms are optimistic that their new status will leverage them to operate optimally.

Speaking on the deal, Group Managing Director of NEM Insurance, Mr Tope Smart, said: “We are delighted to welcome AFIG Funds as a significant shareholder in NEM at such an exciting time in the company’s evolution. This partnership with AFIG Funds is the outcome of several years of constructive engagement, as well as a thorough internal strategic process to identify and engage with the best long-term institutional partner for our company. We look forward to continue to benefit from AFIG Funds’ extensive experience investing in strong African companies particularly in financial institutions. We believe this partnership will accelerate the realisation of our growth ambitions within Nigeria and across the continent. We are confident this will be a fruitful and mutually rewarding partnership.”

Some industry analysts said though the intended, but botched increase in minimum solvency capital of the industry by the regulator is likely going to attract more foreign investors into the country.

This is because according to the president of the Chartered Insurance Institute of Nigeria(CIIN) , Eddie Efekoha, who is also Managing Director Consolidated Hallmark Insurance plc, the increase in minimum solvency capital exercise though was cancelled has opened the eyes of members of the insuring public as some now bench their choice of firms that will underwrite their businesses on N9 billion capital.

This being the case industry analysts said the industry’s capital has automatically been upgraded and with the upgrading, more foreign investors will come into the country through partnership deals and acquisitions.

According to a stockbroker, who said his company is currently facilitating investment talks between foreign investors and a Nigerian insurance firm, the outlook for the sector is positive.

As you are aware, insurance stocks are very affordable now since the Nigerian Stock Exchange (NSE) introduced a new pricing methodology and par value rule January last year.

“Some foreign investors had targeted some insurance firms to acquire before the new recapitalisation policy of the National Insurance Commission (NAICOM) stopped them. However, after the recapitalisation was cancelled, the investors are making their way back to the negotiation table,” the operator said.